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Trade Sanctions: Do They Work?

The Results of Measures Against Russia Have Been Mixed

SENATOR BEN CARDIN: The Maryland Democrat says sanctions “act as a major driver of US leadership.” (Image: Peter Buxbaum)

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Choosing the right kinds of trade sanctions involves a balancing act.

Sanctions can hurt businesses based in the US and its allies.

Some economists have assessed that sanctions have taken one percent to 1.5 percent out of Russia’s GDP.

Imposing trade sanctions has been a favored United States methodology for achieving foreign policy aims. Taking them off the table would certainly limit US options to achieve leverage over other countries, whether it is to punish them for aggression or human rights abuses or to get them to the negotiating table to hammer out agreements on critical issues.

For Senator Ben Cardin, a Democrat from Maryland, “Sanctions are an important part of our soft-power arsenal. Sanctions are part of an overall strategy to get a change in action.”

They come to make political points—such as communicating to Russia that the US does not recognize its annexation of Crimea—or to get bad actors to do the right thing—as when sanctions motivated Iran to come to the negotiating table to discuss the now-crippled nuclear deal.

Economic measures also articulate an important domestic political principle, according to Cardin, who spoke to an audience at the Center for Strategic and International Studies in Washington last week: that Congress, and not only the president, has a role in shaping foreign policy. Presidents of both parties, he said, “would prefer that Congress stay out of foreign policy.”

Sanctions have been in force against Russia and Russians for four years now, ever since the invasion of Crimea, leading to the question as to whether they are working at all. The sanctions have been enhanced since then over issues involving Russian activity in North Korea and Syria and interference in the US 2016 presidential election. It’s worth noting that the current series of sanctions came about after the US and the West did little to react to Russian shenanigans in Georgia and Moldova.

Choosing the right kinds of measures always involves a delicate dance because sanctions—even as they do generate adverse affects on adversaries—can also hurt businesses based in the US and its allies. “The Obama administration was aware sanctions could spin out of control,” said David Murray, a former Treasury official, to CSIS. “The administration settled on a hybrid program” which prohibited US persons from dealing with specific Russian individuals and entities and which also sought “to put pressure on the Russian economy as a whole.” The sanctions first prohibited equity investments and trading in debt of some Russia economic sectors such as financial services “and then expanded outwards while minimizing risk,” Murray added.

Some economists have assessed that these measures took a bite out of the Russian economy to the tune of one percent to 1.5 percent of GDP, although, according to Sergey Aleksashanko, a former deputy chairman of the Central Bank of Russia, “there was no after-action assessment.” He believes the effects of the sanctions amounted to less than that and attributed difficulties in the Russian economy to other factors, such as the drop in the price of oil and to currency issues.

The effect of sanctions on Russia’s energy sector has arguably been a double-edged sword. The sanctions made it more difficult for Russian energy companies to service their debt loads, according to Elizabeth Rosenberg, a former Treasury official, and also prevented them from investing in new technologies that could have unlocked deep water and shale oil reserves.

“But some say that encouraged the Russians to pull back from more speculative energy projects and focus on their core competencies,” said Rosenberg.

For technical reasons, sanctions allow the US to take a leadership role against global actors, because they require coordination with allies to be effective, and the US is in a better position to do that than the European Union. “In the EU, sanctions are set at the central level but implementation takes place at the national level,” said Rosenberg. In the US, the Office of Foreign Assets Control (OFAC), a Treasury component, has overall responsibility for developing sanctions as well as implementing them.

Cardin agrees that sanctions “act as a major driver of US leadership” and, as far as he is concerned, that alone makes them valuable.